It's as if Jon Corzine's PR machine is in top spin mode. You'll recall Jon Corzine is the former head of Goldman Sachs and former CEO of MF Global that appeared in front of Congress yesterday to answer questions about an estimated $600 million to $1.2 billion in missing money from the segregated accounts of customers of MF Global.
Yesterday and today, I heard confusion about whether or not MF Global's diverting customer funds was allowable and the possibility that customers will eventually get the money back.
Let me be clear. The diverting of customer funds from segregated accounts is not legal or allowable, and even if the money is later "found" it is fraud.
Jon Corzine was a bond trader in his past life and he says he doesn't know where the money is and that he didn't understand the details of the operations of MF Global, which appear to be a mess due to negligence or intent.
Corzine Knew or Should Have Known About an Alleged Federal Crime
Corzine may truthfully say he doesn't know exactly where the money is at the moment, but as head of MF Global and as the proponent of risky leveraged sovereign bond trades, he knew or should have known that MF Global didn't have enough cash (or collateral) to support those trades.
Instead of unwinding the trades, it appears that MF Global illegally wired money from customer accounts to satisfy margin calls on MF Global's trades. If that illegal activity happened, Corzine as a bond trader aware of risk and as the head of MF Global, knew it or should have known it. This should be the focus of Congress' investigation. Wire fraud is a federal crime.
"Finding" Money Doesn't Excuse Fraud
Let me address the implication of the potential to "find" the money. The money may indeed be "found." If the bonds mature and pay off one hundred cents on the dollar, it may be possible to claw back money from MF Global's trading partners without much of a fight. Otherwise there may be a legal battle for money that as creditors of MF Global, they were never entitled to in the first place.
The rights of MF Global's customers are superior to the claims of these creditors. But eventually replacing the filched funds is not the same as restitution, since reputations and businesses have already been ruined. Damage has also been done to the trust in the global futures market and Futures Commission Merchants (FCMS).
Never Allowable to Filch Customers' Funds
The key issue is that it is never allowable to divert money from customers' segregated accounts. CFTC Commissioner Jill E. Sommers did a good job of stating that in her testimony yesterday. Moreover, if any trades mimicking Corzine's were done on behalf of the tiny minority of customer accounts that could engage in this trade, the trades would have to be segregated and credits or losses would show up in the relevant customers' accounts.
That still doesn't explain the missing funds in most customer accounts. Most customer accounts would not even be eligible for the "Corzine sovereign bond trade." Why is that? Here's an excerpt from Sommers' testimony: "Under Section 4d of the CEA, customer segregated funds may be invested in: general obligations of a sovereign nation (to the extent the FCM holds customer funds denominated in that sovereign nation's currency)." Most MF Global customers now missing money did not hold foreign currency accounts.
Pushing the idea that this trade was "allowable" for some customer is a distraction trick to avoid the question of whether MF Global impermissibly wired money from customers' accounts to satisfy margin calls for its own trades. Wire fraud is a federal crime.
At Issue is Massive Fraud
The issue under investigation is what appears to be a bold and massive fraud, and Jon Corzine offered no alternative explanation, in fact it seems he cannot explain anything about the firm he ran to anyone's satisfaction.
Jon Corzine may not know where the money is right now, but as head of MF Global, he knew or should have known his trades needed collateral and that customers' money went missing to satisfy part of that need. If it is proved that fraud occurred -- and money missing this long is a very suspicious sign -- it's not plausible to me that Jon Corzine was unaware it was happening at MF Global.
It seems Jon Corzine would have Congress believe he's hopelessly incompetent, because it is better to have them believe that than the business for which he was responsible was breathtakingly wrong.
See also:
Corzine Testifies in MF Global Investigation, C-Span, December 8, 2011.
MF Global Revelations Keep Getting Worse - by Janet Tavakoli, Huffington Post - November 21, 2011
Note: Prior to becoming the CEO of MF Global, Jon Corzine was the 54th Governor of New Jersey, a U.S. Senator from New Jersey, and the CEO of Goldman Sachs.
Robert Kuttner: Why Corzine Won't Do Time
Charles Gasparino: Obama's Corzine Problem
taken seriously again Corzine needs to go to prison
Though the only thing he excelled at, mind you outstandingly, was his consistent performance in bankrupting anything he was trusted with, be it the Federal budgets, or State of NJ and its budget. During his NJ Governorship, property taxes grew double the rate of inflation and still leaving NJ bankrupt.
He bought his way to congress and NJ governor spending over $100 million of his wealth, Goldman Sachs shares, and one can only imagine that such pay out would have only required paybacks in kind.
The question is not whether he is a corrupt incompetent one, or if he'll be held accountable for his actions, that won't happen, rather the question is whether there are any who are not incompetent nor corrupt amongst those at the helm?
We spend billions a year to protect ourselves from foreign terrorists, and we are blind to ones who are doing the real damage. Given the quality, rather lack there of, people at the helm, should one doubt them in running this great country to abyss of annihilation?
The Mafia has been put to shame.
It is truly scary that this man has cultivated such a criminal mind and has been in such positions of power in our financial institutions and in our government. It is an inexcusable and criminal culture our elite business leaders cultivate. It is a crime, and it is ruining our country. These criminals should not be excused, and should be prosecuted to the fullest extent of the law, for the great damage they incurred.
"The diverting of customer funds from segregated accounts is not legal or allowable, and even if the money is later "found" it is fraud."
Corzine's company did exactly the very thing he had been pushing the GOvernment to do about loosening regulation on using client funds. He had said a few months ago, its a sound practice with little risk...
At the minimum Corzine and his group have violated Sarbanes-Oxley..which will likely land him in jail.
the other perpetrators of this grand "get it now" financial round robin. The
fact that neither private investors or banks know where to put their money
safely just promulgates the terror. Gold is way over it's intrinsic value, and
is due at some point for a disastrous sell-off. Platinum is safer, but not
much. Equities won't help you when Europe slides south. We need some-
one who can legislate strict regulation and oversight on all financial angles.
Short of that, we'll just keep spinning around the bowl.
Please take a moment to visit the website. Should you honor my request, you may submit it here... doug@americanprogressive.org
The trustee for the liquidation of MF global is claiming about 72 percent of customer’s money will be returned.
MF Global customers have so far recovered a total of $4B.
Investors are now not only takings risks with their own investments, but they are also being put at risk for the investments of their brokerage. MF Global was the largest commodities broker in the US and went down as the eight largest bankruptcy in the US.
It shouldn't be too long before the CFO and other officials get hauled up in front of the committee and plead the 5th. Sometime thereafter I expect that someone will roll over on Corzine in exchange for leniency.